Tuesday, February 12, 2002

The future of money? Who

The future of money? Who knew I was this interested in payment technology? I’ll stop obsessing about PayPal, but this week’s article in The Economist certainly makes PayPal look outdated. It describes currency that is wired, can be programmed, supports authentication and unique identification, and is purportedly counterfeit-proof.

The technology discussed in the article is RFID (radio frequency ID tags) – a microchip coupled with a small antenna. Costs are down to $.30 per RFID – still prohibitively expensive for banknotes, but the price is heading in the right direction. At least one bank (the European Central Bank) is already exploring ways to integrate RFIDs into Euros by 2005.

A number of potential hurdles exist to establishing an international standard for this: all participating countries would need to agree on a cryptographic standard, for one. Our government’s last major drive at a government-sponsored cryptographic standard was the ill-fated Clipper Chip – now imagine making that an international effort, with all of the various governments lobbying for their own standard. And crypto only works well when it’s well-tested, open to wide public review. What are the odds of this happening in the short term? More than likely, we’ll end up with a cobbled-together collection of “standards” much like the cellular phone industry enjoys today.

But that’s not what intrigues me. Deeper in the article is a comment that bears more investigation. Since RFID-tagged bank notes would support unique identification, and could be identified at cash machines, cash registers, etc., governments are intrigued by the ability to monitor and track movements of bank notes. While The Economist focuses on potentially suspicious transactions (the example used is a large deposit of notes that had been out of circulation for a long time), I think the more interesting angle for governments is taxes (isn’t it always?): by having better visibility into monetary transactions, governments would be able to levy taxes more efficiently – ensuring that tax revenues go up.

Whatever their intentions, there’s no arguing with this focus. Cash is, after all, a government-insured promise to honor all debts. Just because the current system is inefficient, open to fraud and difficult to monitor doesn’t mean that we’re entitled to keep it that way.